Seven take-aways for common-man from RBI's monetary statement

Observing opaqueness in loan procedures, discrepancy in bank charges, RBI has proposed various steps to make banking system more transparent.

NEW DELHI: The Reserve Bank of India (RBI) in its Monetary Policy Statement for 2013-14 has highlighted several measures that will help in financial inclusion and also help common man with day-to-day banking transactions.

Observing opaqueness in loan procedures and discrepancy in bank charges, RBI has proposed various steps that will making the banking system more transparent. It has also sought to restrict the lending against gold coins above 50 grams.

We take a look at seven proposals of RBI that may impact common man:

1) New FAQs on recent KYC/AML/CFT norms

With a view to facilitating understanding of KYC/AML/CFT requirements and compliance thereof in a hassle-free manner by banks and the general public for promoting financial inclusion, RBI has proposed to replace the existing FAQs on KYC/AML/CFT with a comprehensive set of questions and answers by end-June 2013.

To educate the general public as also banks, RBI has been placing on its website Frequently Asked Questions (FAQs) on KYC/AML/CFT. The existing FAQs on KYC/AML/CFT guidelines were placed on the website in May 2011.

Since then, a number of new developments have taken place in this area including simplification of KYC norms for further enhancing financial inclusion.

2) Wide variation in home loan rates being offered on the same day

Did you know that there is a wide variation between the rate of interest charged to borrowers by banks even when the loan is sanctioned on the same day? RBI has observed wide variations in the rate of interest charged to retail borrowers by banks even when the loan was sanctioned on the same day.

"In terms of extant instructions, all categories of loans (with certain specified exemptions) are to be linked to the Base Rate from July 2010. It is expected that the final rate of interest charged to the borrower will include product and customer specific charges and will be reasonable and transparent," said the bank.

However, the very wide variation in rates of interest charged by banks on retail loans to different borrowers on the same day cannot possibly be attributed to customers' risk profiles, the bank observed. "Such a practice may be reflective of opaqueness in the system," the bank stated.

3) Improved customer service by banks

Damodaran Committee Report recommended benchmarking of service charges for basic banking services, zero liability for ATM/Point-of-Sale (PoS)/Internet Banking Transactions, and placing the onus on banks to prove customer negligence and discrimination in interest rates offered to old and new borrowers under the floating interest rate regime.

The IBA has been advised to draw up a strategic roadmap for implementation of these recommendations, increase customer awareness and ensure that the recommendations of the Committee result in optimisation of desired outcomes.

4) No extra charges by 'non-home' bank branches

It is observed that some banks are discriminating against their own customers on the basis of one branch being designated as the 'home branch' where charges are not levied for products/services and other branches being referred to as 'non-home' branches where charges are levied for the same products/services.

This practice is contrary to the spirit of the RBI's guidelines on reasonableness of bank charges.

With the introduction of Core Banking Solution (CBS), it is expected that customers of banks would be treated uniformly at any sales or service delivery point.

"With a view to ensuring that bank customers are treated fairly and reasonably without any discrimination and in a transparent manner at all branches of banks/service delivery locations, banks are advised to follow a uniform, fair and transparent pricing policy and not discriminate between their customers at home branch and non-home branches," the statement said.

5) Proposal for no loan against gold coins weighing above 50 grams

RBI has proposed that banks restrict the facility of advancing loan against gold coins to a maximum weight of 50 grams. This move, implemented would imply that a customer cannot avail loans against gold coins that weigh more than 50 grams.

"While there may not be any objection to grant of advances against specially minted gold coins sold by banks, there is a risk that some of these coins would be weighing much more, thereby circumventing the Reserve Bank's guidelines regarding restrictions on grant of advance against gold bullion," the bank said.

6) Studying Feasibility of Aadhaar as additional factor of Authentication

Following one of the recommendations of the Working Group on securing card present transactions, a Working Group has been constituted in March 2013 to study the feasibility of Aadhaar as an additional factor for authentication of card present transactions and other related issues.

The Working Group is expected to submit its report by end-June 2013.

7) Improved financial literacy

In order to link the financially excluded segment with the banking system, a model for conduct of literacy camps by banks has been designed.

Further, to ensure consistency in the financial literacy material reaching the target audience in a simple and lucid manner, the Reserve Bank has prepared comprehensive financial literacy material consisting of a Financial Literacy Guide, a Financial Diary and a set of 16 Financial Literacy Posters.